How Does General Journal Accounting Work?

Precision and organisation are essential in accounting to meet legal and financial reporting obligations. However, many enterprises face challenges in this area due to the amount of data they need to sort and organise. 

That is why enterprises must use a general journal to ensure every financial transaction is recorded accurately and systematically. It is the first and equally essential step that helps you collect all financial data and prepare it for sorting in the general ledger.

Below is a detailed guide on general journal accounting—what it is, how it works and how to automate it.

What Is General Journal Accounting?

General journal accounting refers to the process of recording every financial transaction as it occurs. Every time there’s a business transaction, you have to note it down in a sequential, chronological order. Each entry includes details such as the date, a brief description of the transaction and the amounts involved on both the debit and credit sides.

Every transaction has both a debit and a credit entry to maintain balance, meaning it uses the double-entry system. The applicable accounting standards, such as IFRS, US GAAP, or local national standards, depend on the company's regulatory requirements.

Example of a General Journal Entry

Here’s how you would record a transaction in the general journal format:

On January 10, 2025, ABC Enterprises provided consulting services on credit for $25,000. Since this transaction involves recognizing revenue and increasing accounts receivable, the journal entry would be:

Entry No. 001

Date: January 10, 2025

• Equipment (Debited) $120,000 → Because it is an asset increasing.
• Accounts Payable (Credited) $120,000 → Because the company owes this amount.

You should always include an entry number to track and reference the transaction more easily during audits.

The Importance of an Accurate General Journal

Having an accurate general journal is the backbone of your financial record-keeping. Here’s why it matters:

• It’s a prerequisite for the general ledger: Every entry you make in the general journal will later become part of the general ledger. This ledger forms the basis for preparing your financial statements, and its accuracy is vital for auditing. If there’s a mistake in the journal, it will translate to your final reports.
• It makes account reconciliations easier: Regularly reviewing your ledger entries simplifies the reconciliation process, allowing you to quickly identify and correct errors. Since the ledger is updated with entries from the journal, it provides an accurate and complete picture of your accounts.

What Comes After the General Journal Process?

After you record all business transactions in the general journal, the next step is to post the entries to the general ledger. This process involves transferring each journal entry to the appropriate ledger accounts, which organises the data by account type. 

Once you finish adding all the entries, you'll prepare a trial balance, where you list all the account balances to check that the total debits equal the total credits. This step is crucial because it confirms that you’ve followed the double-entry accounting system correctly.

General Journal vs General Ledger

The general journal is where you initially record transactions in chronological order. It includes all the details of each transaction, including the date, accounts affected, amounts and a brief description.

However, this data can still be considered raw, unfiltered and unorganised. That is when the general ledger comes in. It is a collection of all individual accounts, where transactions are posted after you record them in the journal. The general ledger organises the data by account, summarising the cumulative activity and balances for each account. This organisation makes it easier to prepare financial statements and assess the overall financial health of an enterprise.

The Role of Modern Technology in General Journal Accounting

Given the information we’ve provided so far, you may think that the general journal accounting process is too time-consuming. This is true, but that doesn’t mean that you have to do everything manually.

Manual input works, but it’s even better when you utilise the power of modern technology in accounting. Let’s look at some of the benefits of using journal entry software in your enterprise:

• Efficient automation: Instead of doing everything by hand, you can use modern software to automate routine entries so that every transaction is recorded accurately and promptly. This automation not only saves time but also reduces the risk of human error, which will make auditing quicker and easier.
• Advanced customisation: For non-routine transactions (e.g., asset sales and bad debt recognition), accounting software can be tailored to meet the specific needs of your enterprise.
• Enhanced accuracy and oversight: Accounting software minimises discrepancies thanks to its built-in validation and error-checking features. It also provides the option for human review when needed, ensuring that the data remains reliable.
• Real-time reporting: Automating the general journal means you have access to real-time data at any point in time. You can use up-to-date financial insights to get a clear picture of your enterprise’s financial health at any moment.

How Aico Can Help Automate Journal Entries

The Aico platform has one goal: to boost your finance team’s productivity. Our automation software allows you to:

• Automatically post journals after payments
• Integrate with various ERP systems, including SAP, Oracle and Dynamics 365 to keep accurate data coming in consistently
• Monitor compliance to ensure that you’re always up to date with the latest industry regulations.

Want to learn more about what we can do for your financial team? Contact our team and schedule a consultation with us today.